Most people in the health care real estate world have heard about Physician Realty Trust’s (NYSE: DOC) blockbuster $725 million sale-leaseback transaction with Catholic Health Initiatives (CHI). What everyone in health care real estate may not know is that Physician Realty Trust was not actually the highest bidder for the 51-property portfolio.

“We received multiple bids and multiple terms from a variety of buyers,” Chris Bodnar, a Denver-based executive vice president at commercial real estate services and investment firm CBRE (NYSE: CBG), said during a presentation at BOMA International’s 2017 Medical Office Buildings and Healthcare Real Estate Conference on May 11. “DOC was not the highest price option on the table.”

In fact, executives at the Milwaukee, Wisconsin-based health care properties real estate investment trust (REIT) did not believe the REIT had to be the highest bidder to win CHI over.

“Our team never really thought we had to be the highest, or pay the most,” Deeni Taylor, Physicians Realty Trust’s executive vice president and chief investment officer, said during the BOMA presentation. “We had to convince them that a perceived small REIT could make this successful.”

Good culture fit

Finding an owner who shared CHI’s values and philosophies mattered more than the ultimate price that new owner was willing to pay, Courtney Hanfland, CHI’s system director, real estate transactions, said at BOMA.

“It was about the right partner,” Hanfland explained. “Price, of course, [was] a big consideration, but it was on par with who are we partnering with.”

Physicians Realty Trust figured that this was the case.

“At the end of the day, CHI needs the best relationship whoever they pick, so let’s approach it from that side and be competitive,” Taylor said, describing Physicians Realty Trust’s strategy.

That’s not to say that the $725 million price tag wasn’t substantial.

“At the end of the day, there’s a break point at which prices does matter, [and] DOC stayed within it,” Nick Barto, CHI’s senior vice president, finance and investments, said at BOMA. “It was an extremely competitive bid, but it wasn’t the highest.”

Boots on the ground

Prior to acquiring the CHI portfolio, Physicians Realty Trust had 173 buildings totaling about 7 million square feet. After the acquisition, Physicians Realty Trust is up to 222 buildings and 10 million square feet.

“We grew very quickly and it was successful,” Physicians Realty Trust President and CEO John Thomas said during the BOMA presentation.

For CHI, the most important part of the transaction process involved informing impacted hospital administrators of their plan to sell, prior to the portfolio actually going to market.

“A lot of time went into working with all of our local [hospital] administrators so they understood what we were doing before we went to market,” Hanfland said. This involved actually visiting affected properties in person.

“[It was] well worth the time and investment to put boots on the ground before we went to market,” Hanfland added.

CHI is confident the decision was the right one for the health system.

“Is owning and running MOBs part of our core portfolio? The answer at the end of the day was no,” Barto concluded.